SEC proposal lets advisers self-custody crypto under conditions

U.S. securities rules govern how registered investment advisers and regulated funds hold client assets. On Oct. 1, the Securities and Exchange Commission proposed a crypto custody framework that would let them self-custody certain crypto assets under specified conditions, according to the SEC’s announcement of the proposal.

The proposal would give advisers a conditional route to hold crypto for clients when a qualified custodian is unavailable, while adding controls around access, security and oversight.

When could advisers hold crypto themselves?

An adviser would first have to determine in writing that a qualified custodian is unavailable for the asset, and repeat that determination at least quarterly. The SEC’s proposed rule also requires the adviser to document its expertise in safeguarding each asset and maintain systems to protect it against loss, theft, misuse and misappropriation, as detailed in the SEC’s proposed rule release.

Those systems would have to address private-key management, require at least two people to authorize crypto transactions jointly, and keep each client’s assets in network addresses holding only that client’s crypto. Advisers would also need cybersecurity controls, annual reviews of safeguarding systems, an annual internal-control report from an independent public accountant and quarterly account statements for affected clients, according to the proposal.

The SEC describes this as an exception to parts of the existing adviser custody rule, including its qualified-custodian requirement. Advisers would remain subject to other applicable custody-rule provisions. If a qualified custodian later becomes available, the proposal would require the adviser to transfer the crypto to that custodian as soon as reasonably practicable.

What oversight would apply to regulated funds?

For a regulated fund placing crypto with its adviser, the fund’s board would review the adviser’s written basis for concluding that no qualified custodian is available. Before the arrangement begins and annually afterward, the board—including a majority of directors who are not interested persons of the fund—would also determine that the asset would receive reasonable care with the adviser, under the SEC proposal.

The proposal covers registered investment companies and business development companies, as well as registered advisers holding client crypto funds and securities. For funds, the adviser’s proposed safeguards would operate alongside board oversight of the custody arrangement.

What other custody route is in the proposal?

The SEC also proposed allowing state trust companies to serve as custodians for client and regulated-fund crypto assets, subject to conditions. The agency said the broader package would update custody, reporting and recordkeeping requirements under the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

The rules are proposed, not in force. The SEC’s rule docket lists Dec. 7, 2026, as the deadline for public comments. The proposal would establish a conditional custody route if adopted; it does not itself authorize advisers or funds to begin self-custody under the proposed terms.

Sources

• announcement of the proposal — sec.gov
• SEC’s proposed rule release — sec.gov